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SENSEX NIFTY India | Notes to Account > Pharmaceuticals > Notes to Account from Indoco Remedies - BSE: 532612, NSE: INDOCO

Indoco Remedies

BSE: 532612|NSE: INDOCO|ISIN: INE873D01024|SECTOR: Pharmaceuticals
Dec 06, 15:45
-6.7 (-4.09%)
Dec 06, 15:59
-6.6 (-4.03%)
VOLUME 11,292
Mar 17
Notes to Accounts Year End : Mar '18

Corporate Information

Indoco Remedies Limited (the Company) is a Public Limited Company domiciled in India and incorporated under the provision of the Companies Act, VII of 1913. Its Shares are listed on two stock exchanges in India i.e Bombay Stock Exchange and National Stock Exchange. Indoco Remedies Limited is engaged in the manufacturing and marketing of Formulations (Finished Dosage Forms) and Active Pharmaceutical Ingredients (APIs). The Company caters to both domestic and International markets, Company has Three wholly owned subsidiaries Xtend Industrial Designers and Engineers Pvt Ltd (formerly known as Indoco Industrial Designers & Engineers Pvt.Ltd.), Indoco Pharmachem Ltd and Indoco Remedies Singapore PTE Ltd.

The Financial statements are approved for issued by the Board of Directors of the Company on May 30, 2018.

NOTE 1: Use of Estimates and Judgments

The estimates and judgments used in the preparation of the financial statements are continuously evaluated by the Company and are based on historical experience and various other assumptions and factors (including expectations of future events) that the Company believes to be reasonable under the existing circumstances. Differences between actual results and estimates are recognised in the period in which the results are known/materialised.

The said estimates are based on the facts and events, that existed as at the reporting date, or that occurred after that date but provide additional evidence about conditions existing as at the reporting date.

A) Terms/rights attached to equity shares

The Company has only one class of equity shares having a par value of Rs.2 per share. Each holder of equity shares is entitled to one vote per share. All equity shares of the Company rank pari passu in all respects including the right to dividend. The Company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

During the year ended March 31, 2018, the amount of Rs.1.00 per share on the face value of Rs.2 is proposed to the equity shareholders of the Company (Previous year - Rs.1.60 per share on face value of Rs.2 declared and paid to the equity shareholders of the Company).

In the event of winding-up, subject to the rights of holders of shares issued upon special terms and conditions, the holders of equity shares shall be entitled to receive remaining assets, if any, in proportion to the number of shares held at the time of commencement of winding-up.

Nature of reserves

(a) Capital reserve

The Company recognises profit and loss on purchase, sale, issue or cancellation of the Company’s own equity instruments to capital reserve.

(b) Securities premium

Securities premium reserve is used to record the premium on issue of shares. The reserve is utilised in accordance with the provision of the Companies Act, 2013.

(c) General reserve

The general reserve is used from time to time to transfer profits from retained earnings for appropriation purposes. As the general reserve is created by a transfer from one component of equity to another and is not an item of other comprehensive income, items included in the general reserve will not be reclassified subsequently to statement of profit and loss.

(i) Information about individual provisions and significant estimates

Sales Returns

When a customer has a right to return the product within a given period, the company recognises a provision for returns INR 2,000.49 lakhs as at March 31, 2018 (March 31, 2017 - INR 1,808.64 lakhs). This is measured on the previous history of sales return. Revenue is adjusted for the expected value of the returns and cost of sales & Inventory are adjusted for the value of the corresponding goods to be returned.

(ii) Movements in provisions for Sales Return

Movements in each class of provision during the financial year, are set out below:

Critical judgements in calculating amounts

When a customer has a right to return the product within a given period, the company recognises a provision for returns INR 2,000.49 lakhs as at March 31, 2018 (March 31, 2017 - iNr 1,808.64 lakhs). This is measured on the previous history of sales return. Revenue is adjusted for the expected value of the returns and cost of sales & Inventory are adjusted for the value of the corresponding goods to be returned.

Note 2 : Employee benefit obligations

As required by IND AS 19 ‘Employee benefits’ the disclosures are as under :

(i) Leave obligations

The leave obligations cover the company’s liability for sick and earned leave.

The amount of the provision of INR 162.99 lakhs (March 31, 2017 - INR 1 73.23 lakhs) is presented as current, since the Company does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months.

(ii) Post-employment obligations

a) Gratuity

The Company provides for gratuity for employees in India as per the Payment of Gratuity Act, 1972. Employees who are in continuous service for a period of 5 years are eligible for gratuity. The amount of gratuity payable on retirement/termination is the employees last drawn basic salary per month computed proportionately for 15 days salary multiplied for the number of years of service. The gratuity plan is a funded plan and the company makes contributions to recognised funds in India. The company maintains a target level of funding to be maintained over a period of time based on estimations of expected gratuity payments.

(iii) Defined contribution plans

a. Provident Fund

The Company also has certain defined contribution plans. Contributions are made to provident fund in India for employees at the rate of 12% of basic salary plus DA and VDA as per regulations. The contributions are made to registered provident fund administered by the government. The obligation of the Company is limited to the amount contributed and it has no further contractual nor any constructive obligation. The expense recognised during the period towards defined contribution plan is INR 1,130.81 lakhs (March 31, 2017 - INR 1,119.77 lakhs).

b. Superannuation

The Company contributed INR 66.24 lakhs (March 31, 2017 - INR 61.72 lakhs) to the superannuation plan. The same has been recognized in the Statement of profit and loss account under the head employee benefit expenses.

Balance sheet amounts - Gratuity

The amounts recognised in the balance sheet and the movements in the net defined benefit obligation over the year are as follows :

(iv) Post-Employment benefits (gratuity)

Significant estimates: actuarial assumptions and sensitivity The significant actuarial assumptions were as follows:

(v) Sensitivity analysis

The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:

The above sensitivity analysis are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in the balance sheet.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.

(vi) The major categories of plans assets are as follows:

(vii) Maturity profile of projected benefit obligation (from fund) :

Note 3 : Lease Operating Lease

The Company has not entered into non-cancelleable operating lease.

Finance Lease

Fair value hierarchy

Level 1 :Hierarchy includes financial instruments measured using quoted prices. This includes listed equity instruments and mutual funds that have quoted price. The mutual funds are valued using the closing NAV.

Level 2 : The fair value of financial instruments that are not traded in an active market (like forward contract) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3 : If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities etc. included in level 3.

This section explains the judgements and estimates made in determining the fair values of the financial instruments that are (a) recognised and measured at fair value and (b) measured at amortised cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the group has classified its financial instruments into the three levels prescribed under the accounting standard. An explanation of each level follows underneath the table.

Note 4 : Capital Management

(a) Risk management

The Company aim to manages its capital efficiently so as to safeguard its ability to continue as a going concern and to optimise returns to our shareholders.

The capital structure of the Company is based on management’s judgement of the appropriate balance of key elements in order to meet its strategic and day-to-day needs. We consider the amount of capital in proportion to risk and manage the capital structure in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders or issue new shares.

The Company’s policy is to maintain a stable and strong capital structure with a focus on total equity so as to maintain investor, creditors and market confidence and to sustain future development and growth of its business. The Company will take appropriate steps in order to maintain, or if necessary adjust, its capital structure.

The Company monitors capital on the basis of the following gearing ratio : Net debt (total borrowings net of cash and cash equivalents) divided by Total Equity.

The Company’s strategy is to maintain a gearing ratio within 50%. The gearing ratios were as follows:

Note 5 : Segment Information

(a) Description of segments and principal activities

The Company has only one reporting segment of its business i.e. Pharmaceutical, wherein the group’s strategic steering committee, consisting of the chief executive officer, the chief financial officer and the manager for corporate planning, examines the group’s performance both from a product and geographic perspective.

The steering committee primarily uses a measure of adjusted earnings before other income, finance cost, tax, depreciation and amortisation (EBITDA, see below) to assess the performance of the operating segments. However, the steering committee also receives information about the segments’ revenue and assets on a monthly basis

(b) Adjusted EBITDA

Adjusted EBITDA excludes discontinued operations and the effects of significant items of income and expenditure which may have an impact on the quality of earnings such as restructuring costs, impairments when the impairment is the result of an isolated, non-recurring event. It also excludes the effects of share-based payments and gains or losses on financial instruments.

Interest income and finance cost are not allocated to segments, as this type of activity is driven by the central treasury function, which manages the cash position of the Company.

(c) Segment revenue

The segment revenue is measured in the same way as in the statement of profit or loss.

Note 6 : Events occurring after the reporting period Other events

Refer to note 42 for the final dividend recommended by the directors which is subject to the approval of shareholders in the ensuing annual general meeting

Note: 7- FINANCIAL RISK MANAGEMENT Financial risk management objectives and policies

The Company’s financial risk management is an integral part of how to plan and execute its business strategies. The Company’s financial risk management policy is set by the Audit Committee of the Board of Directors.

Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including investments, deposits, foreign currency receivables, payables and loans and borrowings.

The Company manages market risk through a Finance department, which evaluates and exercises independent control over the entire process of market risk management. The Finance department recommend the risk management objectives and policies, which are approved by Senior Management and the Audit Committee. The activities of this department include management of cash resources, implementing hedging strategies for foreign currency exposures like foreign exchange forward contracts, borrowing strategies and ensuring compliance with market risk limits and policies.

Market Risk- Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of the financial instruments will fluctuate because of changes in market interest rates. In order to optimize the Company’s position with regards to interest income and interest expenses and to manage the interest rate risk, finance department performs a comprehensive corporate interest rate risk management policy by balancing the proportion of fixed rate and floating rate financial instruments in its total portfolio.

According to the Company interest rate risk exposure is only for floating rate borrowings. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

Market Risk- Foreign currency risk.

The Company operates internationally and is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to USD, EURO, GBP and AUD. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the company’s functional currency (INR). The risk is measured through a forecast of highly probable foreign currency cash flows. The objective of the hedges is to minimise the volatility of the INR cash flows of highly probable forecast transactions.

The Company risk management policy is to hedge forecasted foreign currency sales for the subsequent 24 to 60 months. As per the risk management policy, foreign exchange forward contracts are taken to hedge forecasted sales. The Company also imports certain materials and Capital Goods which are denominated in USD, EURO, GBP, CHF, JPY, CNY which exposes the Company to foreign currency risk to minimise the risk of imports, the Company hedges imports upto 12 to 60 months in advance by entering into foreign exchange forward contracts.

The spot component of forward contracts is determined with reference to relevant spot market exchange rates. The differential between the contracted forward rate and the spot market exchange rate is defined as the forward points.

Derivative financial instruments such as foreign exchange forward contracts are used for hedging purposes and not as trading or speculative instruments.

Credit risk

Credit risk arises from the possibility that the counter party may not be able to settle their obligations as agreed. To manage this, the Company periodically assesses financial reliability of customers and other counter parties, taking into account the financial condition, current economic trends, and analysis of historical bad debts and ageing of financial assets. Individual risk limits are set and periodically reviewed on the basis of such information.

The Company considers the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis through each reporting period. To assess whether there is a significant increase in credit risk the Company compares the risk of default occurring on asset as at the reporting date with the risk of default as at the date of initial recognition. It considers reasonable and supportive forward looking information such as:

- Actual or expected significant adverse changes in business,

- Actual or expected significant changes in the operating results of the counterparty,

- Financial or economic conditions that are expected to cause a significant change to the counterparty’s ability to meet its obligations,

- Significant increase in credit risk on other financial instruments of the same counterparty,

- Significant changes in the value of the collateral supporting the obligation or in the quality of the third-party guarantees or credit enhancements.

Financial assets are written off when there is no reasonable expectations of recovery, such as a debtor failing to engage in a repayment plan with the Company. Where loans or receivables have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognized as income in the statement of Profit and Loss.

The Company measures the expected credit loss of trade receivables and loan from individual customers based on historical trend, industry practices and the business environment in which the entity operates. Loss rates are based on actual credit loss experience and past trends. Based on the historical data, loss on collection of receivable is not material hence no additional provision considered.

Liquidity Risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due and to close out market positions. Due to the dynamic nature of the underlying businesses, Company treasury maintains flexibility in funding by maintaining availability under committed credit lines. Management monitors rolling forecasts of the Company’s liquidity position (comprising the undrawn borrowing facilities below) and cash and cash equivalents on the basis of expected cash flows.

(i) Financing arrangements

The Company had access to the following undrawn borrowing facilities at the end of the reporting period:

The bank over draft facilities may be drawn at any time and may be terminated by the bank without notice. Subject to the continuance of satisfactory credit ratings, the bank loan facilities may be drawn at any time in INR. The amount is arrived at based on the Sanctioned Limits by the Banks and the same is subject to change based on the Maximum Permissible Bank Finance (MPBF) and Drawing Power.

Note 8:

Contingent Liabilities not provided for:

Legal Case -

The Company had availed a factoring facility from a Bank who refused to pay the amount of USD 25,004 to the Company on failure of a Customer to pay for the same. The case is pending in the City Civil Court.

A CFA has filed a case against the company for recovery of the amount adjusted against credit note of Rs.1.49 Lakhs the Company has disputed the Claim.

The Company has filed a case against a stockiest under section 138 under Negotiable Instruments Act 1881 for cheque bounce of Rs.2.23 lakhs.

* Income Tax demand comprises of

a) TDS of Rs.9.54 Lakhs (Previous year - Rs.15.72 Lakhs) for Short Deduction appearing in traces.

** Sales Tax demand comprises of

a) Rs.809.00 Lakhs (Previous year - Rs.421.58 Lakhs) in respect of order from sales tax dept, Andhra Pradesh for classification dispute. The Company has filed an appeal before High Court which is yet to be heard.

b) Rs.20.21 Lakhs (Previous year - Rs.20.21 Lakhs ) as the amount of demand raised by sales tax officer for Financial Year 2007-08 and 2009-10 on account of input credit of entry tax. Company has filed appeal before Commissioner.

c) Rs.21.35 Lakhs (Previous year - ‘ Nil) in respect of order from sales tax dept, Seemandhra for classification dispute. The Company has preferred an appeal before High Court which is yet to be heard.

***Excise Duty / Service tax demand comprises of

a) Company appeal is pending before CESTAT for wrong availment of notification on exempted goods Rs.0.66 Lakhs (Previous year - Rs.0.66 Lakhs).

b) Appeal pending before Dy Commissioner for classification dispute Rs.5.04 Lakhs (Previous year - Rs.5.04 Lakhs).

c) CENVAT credit on input service Rs.91.97 Lakhs (Previous year - Rs.91.97 Lakhs), appeal pending before CESTAT.

d) Company has Filed an appeal before CESTAT for valuation of physician sample ‘ NIL (Previous year - Rs.1.25 Lakhs).

e) Company appeal is pending before Divisional Dy. Commissioner for wrong availment of CENVAT credit Rs.0.79 Lakhs (Previous year - Rs.0.79 Lakhs ).

f) Central excise department is in appeal before Supreme Court for Differential duty on intermixture of vitamins / minerals amounting to Rs.2.91 Lakhs (Previous year - Rs.2.91 Lakhs).

g) CENVAT credit on input service Rs.247.21 Lakhs (Previous year - Rs.247.21 Lakhs), appeal pending before Commissioner of Service Tax.

h) Company appeal is pending before CESTAT for CENVAT credit availment on physician sample amounting to Rs.0.20 Lakhs (Previous year - Rs.0.20 Lakhs).

i) Central excise department is in appeal at Supreme Court for valuation of physician sample Rs.11.20 Lakhs (Previous year - Rs.11.20 Lakhs ).

j) Rs.139.78 Lakhs (Previous year - Rs.139.78 Lakhs) pending before Commissioner of Central Excise Raigad Commissionerate for Exempted product- Allopurinol Value Based Duty Reversal.

The above information regarding Micro Enterprises and small Enterprises has been determined on the basis of information available with the Company. No interest has been accrued on delayed payments, if any.

Note 9:

Previous year’s figures have been regrouped and reclassified wherever necessary.

Source : Dion Global Solutions Limited
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